Housing has been a big story throughout 2020. As remote work took hold during the coronavirus pandemic, stories flooded the news about workers leaving expensive big cities to relocate to the suburbs. While Zillow found that sales and pricing trends in suburbs were not substantially different than in urban areas, the values of single family homes were growing slightly faster than those of condos.
Three things that many suburban homeowners are familiar with are pools, decks, and pest control. These are the expenses no one tells you about when you leave that condo for more square footage and a piece of land to call your own. Pool Corporation (POOL 0.32%), Rollins (ROL 1.33%), and Trex (TREX -0.43%) are three companies that are benefiting from the long-term trend of a U.S. population shifting to warmer climates to enjoy the outdoor space and not being afraid to pay for it.
1. Pool Corporation
If you've ever owned a house with a pool, you likely found out that keeping it in good working order requires a lot of time and effort. Many homeowners pay handsomely to avoid this work, and that provides Pool Corporation with a steady stream of recurring revenue. The company has 302 sales centers in North America and is slowly consolidating a highly fragmented industry. The strategy has rewarded long-term shareholders, and the company is a great example to counter anyone who thinks you have to buy risky technology stocks to get rich. A mere $10,000 invested in this pool service company in 1995 would be worth nearly $5 million today. And the best days for the company may still be ahead. Management recently reported record sales growth of 27% in the third quarter, which translated into a 50% increase in earnings per share. The "home-centric" trends that drove the results show no signs of slowing.
Rollins operates popular pest control brand Orkin and a variety of other regional pest services on every continent except Antarctica. It's a remarkably reliable business. After all, not many people try to cut costs when there are termites, rodents, or other creepy crawlies invading their home. The company has increased earnings for 21 consecutive years -- including through the Great Recession -- and has increased the dividend an average of 12% over the last 17 years. The business is relatively evenly split between residential and commercial, which have retention rates of about 80% and 90%, respectively. The company's sales climbed 7.6% for the first nine months of 2020, and net income climbed 80%. Adding to growth, earlier this year the company launched sanitation services that will help businesses reopen as people return to work. With a robust commercial and residential business, and a history of consistent growth, Rollins is no pest in investors' portfolios.
Trex has been cashing in on the quest for outdoor enjoyment since it was founded in 1996. The company has provided its decking, made from recycled materials, to homeowners spurred by HGTV to transform outdoor areas into luxurious extensions of the home. The company has compounded sales 14% since 2015 while increasing operating income 188%. With wood as the primary competitor, the growing desire for more sustainable materials positions the company for decades of growth. In its most recent quarter, management highlighted 12% sales growth for the first nine months of 2020 compared to 2019. The company is expecting 30% year-over-year growth in the fourth quarter and is standing up new production lines to increase capacity. With nearly one-quarter of all new homes having a deck, and society shifting toward renewable materials, Trex should have a home in any investor's portfolio looking for a way to benefit from the rising housing tide.
A great home for long-term investors
Pools, decks, and pests are things many homeowners have to deal with. Fortunately for these companies, much of the work is too difficult, technical, or toxic for homeowners to do themselves. As our society gets more affluent, people value their time more and more. This leads to more homeowners being willing to pay someone else to clean the pool, build the deck, or spray for bugs than ever before. With housing as hot as ever, shares in these companies have definitely been bid up this year. But investors with a long enough time horizon are still likely to be rewarded. The trends propelling these companies have no end in sight, and may very well go on for decades. For the long term, Pool, Rollins, and Trex are three no-brainer stocks to buy in housing.